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U.S. SEC settles fraud case against former Vitesse executives

NEW YORK, Sept 27 (Reuters) - The U.S. Securities andExchange Commission said on Friday it reached a settlement withtwo former Vitesse Semiconductor Corp executivesaccused of inflating company earnings and backdating stockoption grants.

The settlements with former Chief Executive Louis Tomasettaand former Executive Vice President Eugene Hovanec followed twomistrials in a related criminal case on similar claims. The twomen pleaded guilty to a lesser charge in August.

Under the SEC settlements announced on Friday, Tomasettawill pay $100,000 and Hovanec will pay $50,000 in civilpenalties. Both men agreed to be barred from serving as anofficer or director of any public company for 10 years.

They have also agreed to orders requiring them to disgorgenearly $2.91 million, although those sums are being deemed bythe SEC as satisfied by amounts they previously paid to resolvea separate class action.

Tomasetta and Hovanec neither admitted nor denied theallegations in settling with the SEC. The settlements aresubject to the approval of U.S. District Judge Jed Rakoff inManhattan.

The accord would resolve one of the last remaining caseswith roots in a scandal beginning in 2005 over allegations thatcompanies and their executives manipulated stock option dates. Anumber of civil and criminal cases were launched in the UnitedStates as a result.

The SEC in 2010 accused Tomasetta and Hovanec and two otherformer Vitesse employees of scheming from 2001 to 2006 to inflate Vitesse's revenues.

The SEC also accused Tomasetta and Hovanec of backdatingstock option grants from 1995 to 2006 and later attempting acover-up by fabricating the meeting minutes of a Vitesse boardcommittee.

Illegal backdating occurs when companies tie stock optionsto an earlier date when share prices are low, but do notproperly account for it.

Dan Marmalefsky, a lawyer for Tomasetta, declined tocomment, as did Gary Lincenberg, a lawyer for Hovanec.

The SEC case had been on hold while prosecutors in New Yorksought since 2010 to obtain the conviction of the two men on abroad set of criminal charges including securities fraud andmaking false statements to auditors.

But after jurors failed to reach a verdict in April 2012, ajudge dismissed much of the case. Prosecutors took Tomasetta andHovanec to trial again on a single count each of conspiracy tocommit securities fraud, but jurors again deadlocked inFebruary.

Plea negotiations followed and Tomasetta and Hovanec pleadedguilty in August to an entirely different charge, admitting toaltering company records to impede a contemplated investigationby the SEC.

In 2010, Vitesse agreed to pay $3 million to settle with theSEC.

The SEC said on Friday it decided not to impose civilpenalties on two other former Vitesse executives, Yatin Mody, aformer chief financial officer, and Nicole Kaplan, a formerdirector of accounting.

The SEC cited their cooperation in the investigation. Bothpleaded guilty to securities fraud and other charges in 2010.

The case is Securities and Exchange Commission v. VitesseSemiconductor Corporation, et al, U.S. District Court, SouthernDistrict of New York, 10-9239.